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Performance Measurement - May 16, 2006

Alpha League Table Switzerland

The reference rankings in Europe

Specialists and private bankers dominate the Swiss Alpha League …

This third edition of the Alpha League Table concerns asset management companies in Switzerland. Out of the 51 companies that were eligible, only the best ten have been distinguished by taking account of the number of funds analysed and the steady creation of alpha.

Source: EuroPerformance Style Analytics (www.styleanalytics.com)

The results are extremely tight, with a score of 0.97% for the top-ranked company and 0.22% for the tenth-placed company in the selection. Even more dramatically, the top three are only separated by a hair’s breadth with a difference of less than one hundredth of a point! After the scores obtained by the French (Financière de l’Echiquier – 4%), Italian (Anima – 1.5%) and even Spanish asset managers (Gesbankinter – 3%), the results from the Swiss asset managers may appear to be slightly lacklustre, with the leader only obtaining a score of around 1%.

However, that is not the case at all: The level of the Swiss Alpha League Table is less due to cautious investment management than to a genuine capacity to deliver significant and steady alpha over a very wide range of products. Up until now, the Alpha League has often involved “boutiques” in France and Italy, or rewarded asset management firms that could be considered to be exceptions, but in Switzerland the Alpha League brings together a series of major institutions which have been internationally orientated for a long time, and have produced steady alpha over a long period. The result can therefore be seen as the reward for maturity……

Vontobel Asset Management and Pictet & Cie share 1st place in our awards listing. With an alpha frequency of 29.9% and an average rate of alpha of 3.1%, Vontobel Asset Management receives a score of 0.97%. Pictet & Cie obtain the same score with an alpha frequency of 50.0% and an average rate of alpha of 1.8%.

The Vontobel Banque group, a specialised private bank that was set up in 1924, works in the areas of wealth management and investment banking. Pictet & Cie is considered to be one of the principal independent wealth management banks in Europe.

Banque Sarasin takes 3rd place with an alpha frequency of 32%, an average rate of alpha of 2.9% and a score of 0.88%. A specialised institution, its main activities incorporate investment consultancy, wealth management for private and institutional clients, and investment funds.

More generally, specialists are well represented in the rankings with Clariden Bank, a subsidiary of Credit Suisse, in 5th place and Julius Baer in 10th position.

The major Swiss commercial banks are also represented through Credit Suisse, who take 4th place, UBS in 6th place and Swisscanto, the cantonal bank network, who are in 7th position.

Insurance companies take two spots in the rankings: AIG Private Bank (8th place), subsidiary of American International Group (AIG) – one of the world leaders in the field of insurance and financial services – and Swiss Life Funds (9th place), subsidiary of the European general and life insurance company Swiss Life.

Finally, Lombard Odier Darier Hentsch, the other major private bank from Geneva, which occupies 11th position, remains outside the award listing for 2006 by missing out on the top ten by a few tenths of a point.

Of the 365 actively managed “equity” funds in Switzerland that have a track record of 3 years, 27.5% deliver significant and persistent alpha. How can we characterise the management of these funds?

The breakdown of the “alpha” funds into the different investment zones shows that the Swiss Equities category dominates (19%). Sector funds, and more specifically European funds, arrive in second position with 17% of the population of funds rated 4 or 5 stars in the style ratings. Emerging markets represent 13.9% (European emerging markets + emerging markets), a greater share than international equities (8.9%). All the major investment zones are present: USA, Asia, Japan and the Euro zone. Germany (4.4%) and to a lesser extent Italy are favoured zones, while France and the United Kingdom do not receive much investment.

Source: EuroPerformance Style Analytics (www.styleanalytics.com)

Specialists and private banks monopolise the top places in our rankings. Their investment management is oriented towards emerging markets and sector funds.

The commercial banks provide a range that covers all the markets and present funds that are well rated in all the categories. UBS, with more than 20 funds included in the rankings, posts an average rate of alpha of over 2% over the 12 monthly rankings, which compares favourably with Pictet & Cie’s 1.8% over the same period. However, the frequency of alpha for UBS is 23.6%, while it is over 50% for Pictet & Cie.

The level of frequency therefore penalises the commercial banks, which, over a very broad range, cannot manage to produce alpha persistently in all the “equity” fund categories. A narrower range of products allowed Pictet & Cie to deliver performance that was better than that of their benchmark for 50% of their “equity” funds over the analysis period.

Source: EuroPerformance Style Analytics (www.styleanalytics.com)

The average rates of alpha vary from to 2 to 4% depending on the zone. The strongest outperformance is obtained in the Asian and emerging markets. However, it appears to be more difficult to generate significant alpha with portfolios invested in Swiss company stocks.

Source: EuroPerformance Style Analytics (www.styleanalytics.com)

On average, the “alpha” funds favour large-cap stocks and the share of small caps is limited to 30% of the portfolios. This average results from markets that each have typical styles. In emerging markets and the Asian zone ex-Japan, the notion of small caps is not relevant and the style approach only considers the valuation of company stocks (growth vs value). In the markets that are close to Switzerland, the managers have better and more frequently updated knowledge of the economic environment and the share of small caps in the portfolios tends to be greater. This is the case in particular for the Swiss and German funds and more generally for the “Europe” portfolios, where the share of small-cap and mid-cap stocks is over 50%. Conversely, for the funds that are more diversified on a geographical level, like the international funds, this share is below 10%.

The homogeneity of these rankings shows that the know-how and strategies are broadly shared throughout the manager community. All the companies included in our rankings have an international orientation and have always been attractive to a wealthy and demanding client base. That is why Swiss bankers were very quick to take advantage of the facilities provided by Luxembourg for domiciling their investment funds, thereby establishing close links between Luxembourg and the financial marketplaces in Geneva and Zurich. If one “reimports” funds from Luxembourg and Ireland into their home country, Switzerland represents 7% of the market and is ranked 6th in Europe. Almost 20% of the funds domiciled in Luxembourg are produced by Swiss asset management companies, which means that they are ahead of the United States, Germany and Italy. Funds governed by Swiss law represent less than one-third of the funds marketed in Switzerland (source: SFA).

The “off-shore” dimension of active management in Switzerland is an important asset which results in “Swiss” products being probably the best disseminated in Europe. If one adds active management that is oriented towards market segments that require real expertise – sector products, emerging markets, or international investment management – it is clear that Swiss managers occupy important strategic segments in the European market.